Economic growth moderates in the first quarter

GDP expanded 5.7% on an annual basis in Q1 2024 (Q4 2023: +6.7% year on year), undershooting market expectations. However, growth was still above the 2023 average. Weak lending activity and difficulty securing business licenses amid the government’s crackdown on corruption likely weighed on activity. That said, foreign demand appeared to provide support: Merchandise exports were up 17% in Q1, while tourist arrivals rose 72%.

Looking at production subsectors of the GDP data, industrial growth slowed to 6.3% year-on-year in Q1 from a 7.4% expansion in Q4. Services growth softened to 6.1% in Q1 (Q4 2023: +7.3% yoy). Meanwhile, agriculture growth softened to 3.0% in Q1, from the 4.1% expansion logged in the prior quarter.

Our Consensus is for the economy to gain steam in Q2 as foreign demand strengthens, though lower investor confidence in the wake of the president’s resignation in March could temper investment.

On the external sector, United Overseas Bank’s Suan Teck Kin said: “One key driver for the robust growth outcome in 1Q24 has been external trade, with both exports and imports’ rising at the fastest pace since 2021, boosted by strong demand for products such electronics and phones. The upswing in semiconductor sales since mid-2023 suggests that momentum is likely to continue further into the quarters ahead.” On the economic impact of the president’s departure and the anti-graft campaign, EIU analysts said: “Mr Thuong's departure marks the second resignation by a president in the past two years. This development is expected to dampen Vietnam's reputation for a stable political environment, weighing on investor confidence. While EIU expects inward foreign direct investment to continue at a healthy clip, slow decision-making could give businesses pause, particularly given the risk of elevated political dysfunction over the next two years.” 

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